What Does Peak Oil mean?

The original peak oil curve

The pessimistic view

The less pessimistic view

All fossil fuels are non-renewable at the time scales of human civilization, so we must ask, how much longer will oil and gas be available in sufficient quantities to support our voracious energy needs. In a seminal paper written fifty years ago, M. King Hubbert (1956), a geologist with Shell Oil Company, considered exactly this question. Hubbert proposed that production of fossil fuels should follow a bell curve and predicted that United States production should peak in 1971 and then begin to decline. As it turned out, his prediction of the timing was spot on. He also predicted that world wide oil production would peak around the year 2000 (top left), a prediction that has not, yet, come true. It is true, however, that oil production is in decline everywhere in the world except for the Middle East and the former Soviet Union. It is difficult to find completely reliable estimates for these areas.

Current estimates for the world wide peak production, not only for oil, but also for natural gas, and less traditional hydrocarbon sources range from the pessimistic (ASPO, 2007) to the less pessimistic (Edwards, 2001). The bottom line is that conventional oil and natural gas will probably peak sometime between 2010 and 2040 (Figures at left). Except for some extremely optimistic projections, most people inside and outside of industry predict that oil and natural gas production will be in decline before the middle of the 21st Century. It is important to understand that “peak oil” is an economic concept: production will decline when there are other less expensive energy sources available. Thus peak oil will occur because we have exhausted easily accessible oil (something that is happening rapidly). After peak oil, in the latter half of the century, there will still be considerable oil (and natural gas) in the ground, but it will be so expensive to extract that other energy sources will be utilized.

During the last half of the 20th Century, several related events occurred to complicate today’s energy picture and make future predictions more difficult. Beginning slowly in the late 1950’s and early 1960’s, most oil and gas reserves gradually came under control of state oil companies. Today, just ~10% of oil and gas reserves are held by private companies (e.g., Exxon-Mobil, Chevron, etc.) whereas ~90% are controlled by the governments of the countries in which the vast majority of reserves occur (Aramco in Saudi Arabia, PDVSA in Venezuela, Pemex in Mexico, etc.). Political instability in the Middle East, beginning with the Yom Kippur War in 1973, and the resulting willingness of state oil companies to use the power of their resources for political objectives have resulted in increasing price instability. Unbiased reporting of true known reserves and suspected total resources in countries with state oil companies is less likely as these numbers are regarded as something akin to state secrets, to be manipulated for economic and political gain. In the mid-1980’s, OPEC nations increased their oil reserves estimates by 300 billion barrels in response to OPEC initiated reserves-based export quotas; the increase occurred at a time when less than 10 billion barrels were actually discovered.